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Nikkei rallies after BoJ governor flags early exit

Japan's Nikkei average surged 3.5 per cent to a 52-month high on Wednesday, boosted by exporters as the yen fell after central bank governor Masaaki Shirakawa decided to step down earlier than expected.

His decision raised the prospect that Japan will speed up aggressive monetary easing as Prime Minister Shinzo Abe has put the central bank under relentless pressure to do more to pull the economy out of the doldrums and made it clear that he wants a governor who will be bolder in loosening monetary policy.

The Nikkei climbed 383.45 points to 11,430.37, its highest level since early October 2008 and on track for its biggest one-day percentage rise since March 2011. The broader Topix jumped 3.1 per cent to 969.17.

Currency-sensitive shares jumped. Toyota climbed 4.6 per cent to its highest level since September 2008, also supported by a hike in its full-year operating profit guidance by 10 per cent on a weaker yen and a firmer US sales forecast.

The Japanese currency plumbed a fresh 33-month low of 93.80 yen to the US dollar on Wednesday morning.

"The market's consensus is that it wants a BoJ governor who shares the government's push to reflate the economy with aggressive easing, and the news raised expectations for an appointment of such governor," said Hiroichi Nishi, assistant general manager at SMBC Nikko Securities.

The Nikkei climbed 2.8 per cent to 11,357.24, its highest since April 15, 2010. If it tops 11,408.17, an increasingly likely prospect according to market players, it will reach a level not seen since October 2008, after the global financial crisis kicked it off that year's high of 15,156.66.

While all sectors moved higher, the stand-outs were those set to benefit from a softer yen, with automakers Mazda Motor and Nissan bounding up 4.8 and 4.6 per cent, respectively.

Although Japan's earning season has been relatively weak, with 63 per cent of the 99 Nikkei companies that have reported so far missing analysts' estimates, according to Thomson Reuters Starmine, investors are hoping that a more favourable exchange rate for overseas revenues will boost future profits.

Shippers, highly sensitive to the general strength of the economy, sailed up 5 per cent, while the iron and steel sector, weakened over the past year by fallings steel prices, jumped 4 per cent. The real estate sub-index advanced 3.2 per cent.

Bank of Japan governor Masaaki Shirakawa said on Tuesday he would step down together with his two deputies, three weeks before the end of his five-year term.

"This is proof that the market is still running on speculation rather than the facts at hand... the Abe effect iscreating something close to a bubble," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley.

"And yet I think the market could yet rise when they announce the new governor's name, particularly if it makes an asset purchase budget of 50 trillion yen ($525 billion) from the BoJ more likely."

Fujito singled out Kazumasa Iwata, a former deputy governor to the BoJ and a vocal supporter of a 50 trillion yen fund, as the most likely candidate.

Better-than-expected euro zone data also supported bullish sentiment after political strife in Italy and Spain sent shivers through the market on Tuesday. Markit's euro zone composite PMI, seen as an indication of economic growth, climbed to a 10-month high for January and was slightly above the preliminary reading.